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Sunday, 15 May 2016

308) Managing Currency Transition:

308) Managing Currency Transition:

Times keep a changing… and so do
currencies:

Currencies have changed multiple times,
sometimes due to decimalization, or due to revaluation, assimilation of a
currency into a monetary union and political changes such as a country gaining
independence or due to a change of government.

Change disrupts and is always difficult to accept. Multiple strategies have been adopted to
effectively manage change and ease transition into the new order - ranging from
uniformity of design and shape including education!

This blog post gives some illustrations of how
countries have managed currency transition, ranging from some of the obvious to
unique ideas.

1. Independence of India and Pakistan (1947):

Let
us begin with a major currency transition that was effected closer home.

The British had been ruling India for over
200 years, and had an even older currency system that was in vogue from the
time of the Mughals. This was an
advanced 64-bit currency system with the Rupee equal to 16 annas or 64 paise or
128 pies.

British India split into two
countries – India and Pakistan when they gained independence in 1947, each
country continuing with their independent currencies – The Indian Rupee and the
Pakistani Rupee at par with the British Indian Rupee and following a similar
Rupee-Anna-Paise structure.

To enable an
easy transition, the new coins minted by both countries had differing designs
illustrating the new born countries emblems/ideologies, but the same size,
weight and composition (at least initially) to the last set of British Indian
coins and both coins co-circulated for a brief period.

The set of images shown below reflect these principles of design in transition from the
British India Rupee to the Indian and Pakistani Rupee coins:

One
Anna Transition – British India (1946),
Indian Republic (1950), Government of Pakistan (1950). All coins are
Copper-Nickel, with a scalloped shape and uniform dimensions.

Two
Anna Transition – British India (1946),
Indian Republic (1950), Government of Pakistan (1948). All coins are
Copper-Nickel, with a quadrangular shape and uniform dimensions

Four
Anna / Quarter Rupee Transition –
British India (1946), Indian Republic (1951), Government of Pakistan (1949).All
coins are Copper-Nickel, with a round shape and uniform dimensions

Half
Rupee Transition – British India (1946),
Indian Republic (1950), Government of Pakistan (1948). All coins are
Copper-Nickel, with a round shape and uniform dimensions

2. Decimalisation of the Indian Rupee (1957):

Moving
on with the Indian Rupee story, the Govt. of India planned to decimalize the
currency. By any standards, this
transition was a huge one and over 350million people (population in 1950) had
been using the rupee, anna, paisa system over a millennia.

The key principle employed for effecting this
transition was spreading the understanding that the paisa is not 1/64th
of the rupee, but 1/100th.

The new set of decimal coins all carried a legend of ‘Naya paisa’ (Naya is ‘new’ in Hindi) along with a
detailed description of the value relative to the rupee. Thus, 1 naya paisa carried a legend of ‘1/100th
of a Rupee’ (in Hindi), 2 naya paisa (1/50th of a rupee), 5 naya
paisa (1/20th of a Rupee), 10 naya paisa (1/10th of a
rupee).

These coin sub-divisions were
brand new and had not been used earlier in the subcontinent.

The other denominations of 25 naya paisa (1/4
rupee), 50 naya paisa (1/2 rupee) were equivalent to similar coins of the 4
anna and Half Rupee of the pre-decimal Rupee.
The 25 naya paisa, 50 naya paisa and 1 Rupee coins were similar in
shape, composition and size to their preceding coins.

The word 'naya' was retained for 5 years and
dropped from coins from 1962 onward.

Interestingly, despite such a well planned and executed
transition, it is difficult to shake away the old systems... and until a few
years back when paise coins were still in circulation, one could not avoid
referring to the 50 paise as 'atthani' (8 annas), or the 25 paise as 'chavanni'
(4 annas).

Similar
concerns as faced by India must have plagued the British to changeover from a
currency system that was established a millennia ago where the penny was 240th
of the pound (Pound = 20 shillings; Shilling = 12 pence).

In fact, Great Britain was quite late at this
- decimalizing only in 1971, while most British countries/prior colonies had
decimalized a decade earlier.

Here is
what they did after taking all the time – notice the stark similarity with the
approach used for introduction of the decimal Indian Rupee:

a)Used the word 'new' on all
the new pence coins. 'New' was dropped
from coins after a ten year period in 1981

b)Used exactly the same size
for the 5 pence, 10 pence coins as the pre-decimal 1 shilling and 2 shilling
coins that had an exact equivalent in both systems. Both 5 pence and 1 shilling were 1/20 of the
Pound while the 10 pence and 2 shillings where 1/10th of the
pound. These shilling coins
co-circulated with the new currency until 1990.

c)Introduction of new
denominations, viz. 1/2p, 1p and 2p. The
decimal two pence (7.12 g) was double the weight of the decimal penny (3.56 g),
which was itself double the weight of the decimal halfpenny (1.78 g). This was
so that the three bronze coins could all be stored together in bank bags and
then weighed to determine their value. That is the historical reason why the
two pence coin appears so outlandishly large for their worth these days.

Transition
from One Shilling (1958) to 5 New Pence (1969), both being 1/20th of
the Pound, with same size, composition and shape

Transition
from Two Shillings (1956) to 10 New Pence (1968), both being 1/10th
of the Pound, with same size, composition and shape

The
new ½ New Penny (1971), 1 New Penny (1971) and 2 New pence (1981) coins of the
decimal Great British Pound

4. Decimalisation - Rhodesia (1970), New Zealand (1967):

Rhodesia
planned to decimalize in 1970 with the new decimal dollar, which was ½ the
pre-decimal pound.

Thus, 5 new decimal
pence (5p) were equal to 6 pre-decimal pence (6d), both being 1/40th
of their respective currencies.
Interestingly, Rhodesia pre-empted the decimalization and doubly
denominated their coins of the pre-decimal pound.

Thus, in 1964 itself, coins of Rhodesian
pre-decimal pound were introduced for 6 pence, 1, 2 and 2½ shillings, (marked
as 6D, 1’-, 2’- and 2’6 respectively) and also bore a denomination in cents
(5C, 10C, 20C and 25C, respectively).

This allowed the old coins to continue as
legal tender even after decimalization.

A similar
situation was existing for New Zealand where the new decimal dollar was ½
pre-decimal pound. However, here only
one coin in the new currency set was doubly denominated (viz. 10 cents and 1
shilling).

In addition to the double
denomination principle, the coins with equivalence in both the old and new
currency carried similar shape, size and composition.

Transition
from the Old New Zealand Pound system to Dollar system – 1 old shilling (1965)
and the new 10 cents (1969) doubly denominated as 1 shilling

5. Redenomination - Turkey (2005):

In times of inflation, the same number of monetary
units have continually decreasing purchasing power.

In other words, prices of products and
services must be expressed in higher numbers and if these numbers become
excessively large, they can impede daily transactions as human psychology does
not handle large numbers well.

Countries have alleviated this problem by redenominating
their currencies, i.e. introducing a new unit that replaces the old unit with a
fixed ratio. This ratio is typically a positive integral power of 10 like 100,
1000 or 1 million, and the procedure can be referred to as "cutting zeroes".

Turkey
redenominated their currency in 2005 introducing the ‘Turkish New Lira’ equal
to 1 million (106) old Turkish Lira.
The ‘new’ (‘yeni’) was dropped
from the coins in 2009. Interestingly,
it appears that in preparing for the new currency, the last set of coins
introduced in the old currency bore a strong resemblance to the future set of
coins with an equivalence in value.
There were three coins in this set: 50 Bin Lira (50,000 old lira
equivalent to 5 new kurus (0.05 New Lira), 100 Bin Lira (100,000 Lira
equivalent to 10 new kurus) and 250 Bin Lira (250,000 Lira = 25 Kurus).

Transition
from the old Turkish Lira to the New Turkish Lira – 50,000 Liras (2002) equal
to 5 new Kurus (2005). Notice the common
obverse design

6.Redenomination
–Mexico (1993):

Mexico
revalued its currency in 1993 owing to inflation introducing a new currency
Nuevo (new) peso equivalent to 1000 old pesos.
In 1996, the word neuvo was removed from the coins. In Mexico’s case, there was no similarity in
design of the new coins with the old set and to further enhance the
differentiation, all the neuvo peso coins were introduced as bimetallic – well,
being radically different also appears to be a useful transition strategy!

7.Redenomination
–Brazil:

Brazil
had eight currency re-denominations in the past 100 years. The cumulated effort of these
re-denominations is to the tune of 1015. This means that 1 Real of the current
currency Brazilian real is equivalent to almost 1,000,000,000,000,000 Brazilian
Reis (currency in 1942).

Listed
below are the various Brazilian currencies and re-denominations in the past 100
years:

·Real (Reis) –(1790 -1942)

·Cruzeiro (1942 - 1967)
1:1000 (i.e. 1 Cruzeiro = 1000 Reis)

·Cruzeiro novo (1967 -
1986) 1:1000

·Cruzado (1986-1989) 1:1000

·Cruzado novo (1989-1990)
(1:1000)

·Cruzeiro (1990 -1993) 1:1

·Cruzeiro real (1993-1994)
1:1000

·Real (1994-Current) 1:2750

Notice
that between 1986 and 1994 itself there were 4 re-denominations losing over a
trillion (1,000,000,000) times in value.
The coin sets introduced during this time changed and lost value very
quickly. The Brazilians must have
perfected the art of managing currency transition, and some of the coin series/patterns
actually spread across multiple currencies, so much that one would not notice
that the coins belong to different currencies altogether. Obviously,
this was done so that coins minted in older currencies could still continue to
circulate.

The
last set of coins released for the Cruzeiro novo (100 Cruzeiros, 200 Cruzeiros
and 500 Cruzeiros) carried the same obverse as those on the first set of
Cruzado coins and were of the same shape, size and composition as equivalent
coins of the new Cruzado (10 centavos, 20 centavos and 50 centavos).

100
cruzeiros (1985) and equivalent 10 centavos (1987) of the new Cruzado followed
by 20 centavos and 50 centavos of the new currency. The bottom row shows the common obverse
design of coins belonging to both currencies.

In
this current transition, as it was done at par, the only impact was replacement
of the Cruzado novo coins with cruzeiro coins.
The 1, 5, 10 and 50 centavo coins issued in 1989 for use with the
previous currency continued in use after the introduction of the cruzeiro. In
1990, stainless-steel 1, 5, 10 and 50 cruzeiro coins were introduced. All these coins carried a consistent design
theme across the centavo and cruzeiro coins.

The
first three coins 5 centavos, 10 centavos and 50 centavos belong to Crusado
novo currency, while the next three coins 1 Cruzeiro, 5 Cruzeiros and 10
Cruzeiros are of the new Cruzeiro series.
Notice the beautiful thematic design of working men and womenfolk
depicted on all the coins, a tad bit similar to some coins of the socialist era
in Eastern Europe.

The
last set of coins issued for the Cruzeiro in 1992 was denominated in 100, 500,
1000 and 5000 Cruzeiros. These coins
carried a new and beautiful wildlife design theme. For the new currency, no centavo (sub-unit)
coins were issued and the coins of the previous current continued to serve as
equivalent 10 centavo, 50 centavo and 1 Cruzeiro real coins. Coins for the new currency were introduced in
denominations of 5, 10, 50 and 100 Cruzeiro Reais continuing with a similar
design theme.

The
first three coins 100 Cruzeiros, 500 Cruzeiros and 1000 Cruzeiros belong to the
Cruzeiro currency, while the next two coins 5 Cruzeiro Real and 10 10 Cruzeiro
Real belong to the new Cruzeiro Real series.The entire thematic series spanning across two currencies has beautiful
illustrations of wildlife:

100
Cruzeiros depict the West Indian manatee (local name Peixe Boi) found in the
coasts of Brazil and the Amazon Estuary, 500 Cruzeiros depicts the Loggerhead
sea turtle, 1000 Cruzeiros show two Acara fish, 5 Cruzeiro Real depict two
macaw parrots while the 10 Cruzeiro Real coin depicts an Anteater.

Israel
seems to have found a very unique mechanism to manage currency transition by
having continuity of design (image) on equal valued coins (on absolute basis)
between old and new currencies. Thus,
coins across multiple currencies carry the same image on the coins where they
are equivalent in value. Thus, the
designs on coins of 1 new agora (1/100 New Shekel), 10 Old Sheqalim, and 100
Lirot would be the same. Similar concept
is adopted all coins with new designs introduced for new absolute values
introduced with respect to the original lira.

Well, Israel’s currency transition definitely seems
novel though I am not certain if this really helped in some way, or was it just
the mint master’s whim.

(Postscript: Author’s Note: There must be
several other currency transitions that have happened and will continue to
happen. I do expect some additions to
this post in the future. In case any of the readers would like to share any
interesting transition story, please do so via the comments. Any feedback is welcome and appreciated! )

Blog Administrator’s Note:(The above article has been contributed as a Guest Post
for this blog by Rahul Kumar, an avid Numismatist based in Hyderabadwho has an interest in the historical development of
coins across the World. Apart from a detailed study of the subject, Rahul has
supplemented his write-up with illustrative images of coins in his collection.

In
addition, Rahul has written several detailed articles on the subject of Numismatics. He has earlier
contributed a popular post for this blog as a Guest Contributor, titled “The
British Empire: A Case of Numismatic Segregation” which makes for a very
interesting study/read on this subject for Numismatists and Coin Historians.
This post can be accessed through the following link:

In addition, Rahul has given very interesting inputs
in my earlier post put up on this blog in May 2011 titled “Independent India issues:
The evolution of the one-rupee coin , the steady building block of the Indian
monetary system”, supplementing his inputs with interesting charts. This post can be accessed
through the following link:

About Me

I am Rajeev Prasad, a retired State Bank of India officer who had been collecting coins in a shoe box without having a serious interest. Only after quitting my job I got the time to take serious interest in developing my coin collection into a hobby. A pity, because I would have had more opportunity to lay my hands on more 'exclusive coins' while in the Bank. Anyway, as they say,better late than never. If you have any views to share with me regarding this blog , please contact me on my email rajeevprasad1208@gmail.com. I also have a twitter account @prasad_rajeev.
I had an opportunity to participate in a Documentary on the life and times of the 25 paise coin titled “Chal Basi Chavanni” (The four anna/twenty five paise coin passes away), aired by STAR NEWS on 29th and 30th June 2011. The programme helped in making many persons hold back onto their “chavannis”, the little round beauties, instead of returning them to Banks .